Tài liệu Learning, upgrading, and innovation in the telecommunications industry in vietnam a rent management analysis

VEPR Working Paper WP-16 Learning, Upgrading, and Innovation in the Telecommunications Industry in Vietnam: A Rent Management Analysis Christine Ngoc Ngo © 2014 Vietnam Centre for Economic and Policy Research University of Economics and Business, Vietnam National University Hanoi WP-16 Learning, Upgrading, and Innovation in the Telecommunications Industry in Vietnam: A Rent Management Analysis Christine Ngoc Ngo This paper should not be reported as representing the view of the VEPR. The views expressed in this report are those of the author(s) and do not necessarily represent those of the VEPR. Learning, Upgrading, and Innovation in the Telecommunications Industry in Vietnam: A Rent Management Analysis Christine Ngoc Ngo Assistant Professor Department of Economics and Business Studies Drew University [email protected] ABSTRACT This paper analyzes the industrial success of the telecommunications industry in Vietnam using developmental rent management analysis (DRMA). The empirical evidence for this study is primarily based on 42 semi-structured interviews with government officials, firm managers, suppliers, workers, and industry experts from 2010 to 2012. DRMA suggests that the industry’s success was based on a number of rent management factors that corrected certain market failures and encouraged significant effort for learning and technology adoption. These factors were fundamentally based on: (1) favorable political supports for rent creation from the state, (2) an effective structure of rent allocation and implementation, and (3) credible incentives and pressures that encouraged industrial upgrading. While each factor by itself was insufficient to ensure the success of the industry, their synthesis was such that Vietnamese telecom operators, in particular Viettel Group, were motivated and compelled to rapidly expand their industrial capability through technical learning and upgrading. Paper prepared for the Annual Conference of the Allied Social Science Associations (ASSA) in Philadelphia, PA, January 3–5, 2014. All comments are welcome and appreciated. Please do not quote without the author’s permission. 1 TABLE OF CONTENTS 1.   Introduction ............................................................................................................................ 3   2.   Summary of the DRMA Framework .................................................................................... 6   3.   Industrial Upgrading in the Telecommunications Industry .............................................. 9   4.   Failure of Monopoly Rents .................................................................................................. 15   5.   Informal Learning Rents: The Case of Viettel .................................................................. 18   5.1.   The Macropolitical Context of Viettel’s Development ............................................................ 22   5.2.   Rents and the Mechanism of Rent Allocation .......................................................................... 24   5.2.1.   Land, Infrastructure, and Labor ............................................................................................. 24   5.2.2.   Sources of Financing ............................................................................................................. 25   5.3.   The Organization of Viettel and the Telecom Industry .......................................................... 27   5.3.1.   Management Capability......................................................................................................... 27   5.3.2.   Financial Rewards and Reinforcement of Political Support ................................................. 30   5.3.3.   Competition and Military Pride ............................................................................................. 32   5.3.4.   Market Incentives .................................................................................................................. 33   5.3.5.   Pressure of International Competition ................................................................................... 34   5.4.   Viettel’s Transformation and Rent Outcomes ......................................................................... 35   5.4.1.   R&D and Telecom Device Manufacturing............................................................................ 36   5.4.2.   3G Dongle ............................................................................................................................. 38   5.5.   Viettel: Concluding Remarks .................................................................................................... 40   6.   Conclusion ............................................................................................................................. 42   2 1. Introduction The claim in the mainstream literature on development, rents, and rent-seeking is that to achieve good outcomes, there should be no rents or rent-seeking 1 (Buchanan, Tollison, & Tullock, 1980; Krueger, 1974; Posner, 1975; Tullock, 1967). More problematic is the assertion, which is widely spread by donor agencies, that development failures in poor countries are due to the pervasive nature of rents and rent-seeking (Coolidge & Rose-Ackerman, 1999; Mauro, 1997). For example, donors’ conditionalities in many poor countries are often meant to curb rents and rent-seeking on grounds that they necessarily undermine development outcomes. One country where that last argument has been advanced is Vietnam. Vietnamese experts and specialist frequently attribute Vietnam’s development challenges to rents and rent-seeking. The warning from Work Bank 2002 Development Report is representative: [Vietnam] may fail to remove the obstacles in its reform path, let the vested interests capture government transfers to offset their inefficiencies, and see an unhealthy relationship develop between enterprises. . .and government officials. A weak macroeconomic situation, slower growth, increased inequality and generalised corruption could be the outcomes (World Bank, 2002, p. 4). An emerging body of literature is beginning to challenge this narrow neoclassical analysis on rents and rent-seeking. Research on the topic by institutional economists such as Khan and Jomo (2000b), North et. al. (2007), Chang and Cheema (2002), and Booth and 1 This is not to be confused with rent outcome. In the Krueger–Posner argument, rent outcome is a negative deadweight loss. 3 Golooba-Mutebi (2012) provide evidences and insights that certain type of rents can be valueenhancing and rent seeking can produce good outcomes. “In a world where learning and innovation have to be rewarded, distributive conflicts dealt with, where incentives have to be created to deal with asymmetric information and where scarce natural resources have to be conserved, many types of rents are socially desirable” (Khan & Jomo, 2000a, p. 8). This is because, not only is rent-seeking ubiquitous in developing countries policy makers are constantly influenced by and under pressure from rent seekers (Khan, 2000a; Medema, 1991). In many cases, politicians even receive some of the rents they create and, indeed, require these rents to maintain political stability and the ruling coalition (Cowen, Glazer, & McMillan, 1994; Khan, 2000a, 2000b). However, even in cases of corruption, rent-seeking does not necessarily produce unproductive outcomes, and the benefits of rent policy are not necessarily destroyed (Khan, 2011; Khan & Blankenburg, 2009). This paper is situated within this emerging literature. It argues that rents are better understood as a policy instrument that could either be damaging or developmental depending on the rent management mechanism, defined as the configuration of politics, institutions, and industry organization 2 that produce the rent outcomes. In applying the DRMA framework articulated in Ngo (2013a), this paper analyzes the industrial success of the telecommunications industry in Vietnam. The purpose of this analysis is to identify the configuration of rent management that drives the industrial upgrading and capability-building of this industry, and how the Vietnamese government’s management of rents has contributed to learning efforts and the rapid pace of industrialization in the sector. This paper suggests that the success of the telecommunications industry is based on a number of rent management factors that corrected 2 In this paper, industry organization is defined as the structure of market competition and internal organization of firms affecting responses to different types of rents. 4 certain market constraints and encouraged significant effort for learning and technology adoption. The following are some of the notable factors. First, there was strong political will to develop the telecom industry in order upgrade the infrastructure for Vietnam’s industrialization. Second, as the case study of Viettel highlights, the role of informality in rent creation and allocation—the Ministry of Defense (MoD) provided military resources to Viettel as rents—in motivating Viettel leaders to measure up to VNPT. Third, while market competition by itself could not help operators overcome market failures in land, infrastructure, or capital that constrained the development of the industry, especially in its early stages, it was value-enhancing in that it forced capability-building and upgrading among the operators. Finally, pressure of liberalization of the telecom market was an effective time horizon factor for Viettel and VNPT to learn more and enhance their competitive edge while the Vietnamese market was still relatively free from foreign competition. The empirical research is based on data collected during three fieldwork sessions, which total an 8-months period: December 2010, April–October 2011, and June 2012. The fieldwork yielded 42 semi-structured interviews with government officials, firm managers, suppliers, workers, and industry experts, each lasting between one and three hours. This paper makes three distinct contributions to the literature. First, it provides empirical evidence to support the analytical view that rents can be growth-enhancing under the correct configuration of political, institutional, and industry-wide conditions. Second, by assessing the industrial development of the telecommunications industry, this paper adds to the literature on how technological adaption and innovation take place in an emerging economy. These findings underscore the need to re-examine how economic actors and a state collaborate through formal and informal institutions to boost industrial upgrading in developing countries. Finally, this paper 5 adds to the scholarship of Vietnam’s industrial development from a political-economic perspective. 2. Summary of the DRMA Framework The central utility of the DRMA framework is to help observe how the three sets of factors—politics, institutions, and industry organizations—affect the incentives and pressures that ensure firms’ efforts toward acquiring technical and organizational capability through inductive analysis of case studies. This is based on the premise that successful rent management primarily depends on the formal and informal political and institutional arrangements that produce incentives and pressure for learning and upgrading. In this context, while rents are created for a variety of purposes, the rent outcome, whether good or bad, depends on the configuration of these three factors that, in many respects, have important informal elements. In essence, DRMA enables a broader understanding of the political, institutional, and industrial factors at play in the process of economic development, including its technological dimension. The developmental rent management analysis uses four analytical steps. The first step identifies the type of rent involved, whether it is monopoly, learning, redistributive, or innovative. The second step establishes the potential incentives and effects created by the rent. The third step analyzes the configuration of politics, institutions, and industry organizations that produce the actual rent outcomes. This configuration is known as a rent management mechanism. The fourth step looks at how firms and industries transform as a result. Figure 1 maps the steps in order. Together, these four steps constitute the DRMA framework. 6 Figure 1: The DRMA Framework 1. Identify the type of rent   2. Identify potential incentives and effects derived from rent 3. Configuration of rent management 4. Assess rent outcomes Source: Ngo (2013a) Analytically, step three requires the most important and substantive analysis within the DRMA framework. This step covers three levels of rent management mechanisms, as shown in Figure 2. The highest level analyzes the configuration of politics and institutions that describe the macro-political order; namely, the political context of rent creation and management. The second level assesses the policy and policy-making structure that generates and implements particular rents; namely, the institutional structure of rent allocation. The third level studies the structure of and boundaries between the firms and the market that create incentives and pressures for efforts, as well as the implications of the organization of the industry. 7 Figure 2: Analytical Hierarchy of the DRMA Framework •  Political context of rent creation and management Configuration of politics and institutions that describes the macropolitical order Policy and policymaking structures that generate and implement particular rents. Structure and boundaries of and between firms and the market •  Institutional structure of rent allocation •  Organization of the industry: (1) market structure, (2) structure of firms’ ownership, (3) type of technology, and (4) initial capability of the firms. Source: Ngo (2013a) Table 1 illustrates the DRMA four-step approach in greater detail. 8 Table 1: Details of the DRMA Four-Step Approach Step 1: Identify the Type of Rent Step 2: Identify Step 3: Analyze the Configuration Incentives and of Factors Describing the Rent Opportunities that Management Context the Rent Creates Step 4: Assess the Outcomes of the Rents Monopoly Ask: Are developmental or damaging incentives created by the rent? Identify the outcomes Innovative 1. Political Context: the configuration of politics and institutions that describe the macropolitical order for the rent. Learning 2. Institutional Structure of Rent Allocation: the formal and informal policy and policy-making structures that create and implement the rent. Redistributive Analyze how outcomes emerge given the configuration of rent management 3. Industry Organization: market structure, structure of firms’ ownership, type of technology, and initial capability of the firms. Source: Ngo (2013a) In the next section, this paper applies the DRMA framework to the telecommunications industry in Vietnam and assesses how the three factors of rent management affected the structure of incentives and pressures that ensured effort in learning, upgrading, and innovation. 3. Industrial Upgrading in the Telecommunications Industry Until the late 1980s, the telecommunications industry in Vietnam was characterized by strict state regulations and a state-run monopolistic market, which led to tight control of all telecom services. Mobile phone service was non-existent. The year 1986 marked the start of the Doi Moi reform programs, the gradual privatization (locally called equitization) of some state- 9 owned enterprises (SOEs), the corporatization of other SOEs, and a gradual liberalization in the telecom sector. During this period, the state-run Directorate General of Posts and Telecommunications was the sole public telecommunications provider in Vietnam. In 1992, Decree 115/HDBT changed the Directorate General into the General Company of Posts and Telecommunications (VNPT), an SOE that was given the state monopoly for operating the national telecommunications network. In 1995, Vietnam joined the Association of Southeast Asian Nations (ASEAN) and normalized its trade relations with the United States. This eventually led Vietnam to sign a bilateral trade agreement (BTA) with the United States in 2001. The US–Vietnam BTA contained an important telecommunications provision, which set the agenda to gradually liberalize the Vietnamese telecommunications industry. The Vietnamese government officially abolished VNPT’s monopoly in 1995 by opening the sector to competition for all telecom services. This event started a period of rapid development for the industry with considerable technological upgrading and learning. In the same year, Sweden’s Comvik Group, a financially and technologically powerful telecom company, signed a business cooperation contract (BCC)3 with VNPT, forming MobiFone, the first mobile phone provider in Vietnam. This cooperation marked a milestone in the industry’s development, because foreign investors and foreign mobile phone providers made their official presence in Vietnam’s telecom industry (Thuy-Nga, 2010). MobiFone has consistently been the leader in mobile phone service since its inception. 3 A BCC is a written agreement between a foreign investor and a Vietnamese partner in which the parties agree to cooperate to undertake certain business activities in Vietnam and to share the revenue or profits arising from such activities. No separate legal entity or company is established, and there is no limitation on liability for participants (Allens, Arthur, & Robinson, 2010). 10 Figure 3 demonstrates the impressive growth in revenue of the telecom sector in Vietnam since 2006, including mobile phone service, landline phone service, and Internet service. Figure 3: Total Revenue of the Telecom Sector in Vietnam Between 2006 and 2012 (in USD millions) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2006 2007 2008 2009 2010 2011 2012 Source: Data compiled from MIC (2011, 2012) Table 2 highlights the high growth rate of revenue in the telecom sector between 2006 and 2012. As can be seen in the table, total revenue from landline phone, mobile phone, and Internet services grew rapidly from 2006 to 2010. Total revenue declined in 2011 but increased once again in 2012. 11 Table 2: Industry’s Total Revenue and Growth Rate, 2006–2012 (in USD millions) Year 2006 2007 2008 2009 2010 2011 2012 Total Revenue 2769 3553 5144 6868 9411 6992 8499 Growth by % year-on-year Base year 28 44 33 37 -27 21.5 Source: Author’s own calculation based on data from MIC (2011, 2012) In 2009, the first 3G phone service was launched by VinaPhone. By 2012, there were four major 3G providers—VinaPhone, MobiFone (both under VNPT), Viettel, and Vietnamobile—and Vietnam’s telecommunications sector continues to expand. Figure 4 highlights the market share for each type of telecom service in the Vietnamese market, and shows that the mobile market is the country’s most dynamic telecom sector. It had an average growth rate of 80.6 percent between 2005 and 2010, and reached 153.7 million subscribers by the end of 2010. 12 Figure 4: Market Share by Types of Services in 2012 Fixed Internet 6% 3% Mobile 91% Source: MIC (2012) Figure 5 illustrates the market shares of the major telecom providers in all of the telecom segments in 2012. It demonstrates that together Viettel and VNPT have more than 93 percent of the market share. 13 Figure 5: Market Share of Operators in all Telecom Segments EVN+SPT +GTEL+VTC +CMC 2% FPT 2% Ha Noi Telecom 3% Viettel 41% VNPT 52%   Source: MIC (2012). CMC is CMC Telecom. EVN is Electricity of Vietnam Telecom. FPT is FPT Corporation. GTEL is GTel Mobile Joint Stock Company. SPT is Saigon Postel. VNPT is Vietnam Post and Telematics. VTC is Vietnam Television Corporation. The telecommunications industry provides a unique case of industrial success in Vietnam because of its rapid growth rate and transformation. In just a little more than 15 years, the industry has transformed from a monopolistic industry dominated by one state-owned enterprise, VNPT, to a diversified market with nine mobile phone operators in 20114 and a sustained average growth rate of 35.5 percent per year between 2006 and 2010, as reported by the Ministry of Information and Communications (MIC) (2011). Conceptually, this author divides the development of the telecom industry into three stages, as seen in Figure 6. In the first stage, which was between 1975 and 2004, the industry consisted of just VNPT, which held a monopoly. The launch of S-Fone in 2003 and Viettel’s 4 There were seven operators as of early 2013. 14 mobile phone service in 2004 marked the beginning of the second stage—the post-monopoly period—which lasted until 2012. Major industrial learning and upgrading took place during this period. The third stage, which began in 2013, has already seen significant change in the telecom industry, including a merger between Electricity of Vietnam Telecom and Viettel, and the departure of three out of the four foreign partners from Vietnam’s mobile phone market. This paper primarily focuses on the first and second stages of the industry’s development. Figure 6: Stages of Vietnam’s Telecom Industry Development Stage 2: Postmonopoly period Stage 3: Duopoly and industry restructuring (starting 2013) (2004-2012 ) Stage 1: Monoply period (1975-2004) Note: The monopoly is VNPT. The duopoly is VNPT and Viettel. 4. Failure of Monopoly Rents VNPT was the first telecom service provider in Vietnam, and remains the dominant stateowned enterprise in all telecom segments except marine-based services. In 2010, VNPT, with chartered capital of VND 72,237 billion (USD 13.4 billion), operated largely in mobile phone, 15 landline phone, Internet services, and IT services. VNPT owns the two dominant cellular companies MobiFone and VinaPhone. Up until 1995, VNPT inherited substantial monopoly rent from the government. This was largely due to VNPT being a unit of the Vietnamese government during its central planning period; for security purposes, there was considerable political acceptance to retain the monopolist under state ownership (interview with MIC official, 2011). As a result, there was no political pressure or institutional mechanisms that compelled effort from VNPT to industrialize. Consequently, VNPT exercised tremendous monopolistic power and reaped enormous profits from a lucrative market that held no competition. Meanwhile, it only slowly upgraded its infrastructure and management abilities, since it had little incentive to do either (interview, 2011). An example of the underdeveloped telecom infrastructure and service during this period is that in the late 1990s, on average, it took VNPT up to one month to install a fixed phone line for a business or household in large Vietnamese cities such as Ho Chi Minh City or Hanoi (interview, 2011). In addition, their tariff rates were very high, making phone service inaccessible for the majority of the population, and prices of mobile phones made it nearly impossibe to buy a phone of any kind. In 1999, Vietnam’s average national income was less than VND 2.08 million (USD 100) per year. In that same year, a mobile phone handset could cost more than that. Furthermore, the cost per-minute of mobile phone service was VND 3,000–4,000 (USD 15–20 cents), an amount that was approximately half of the daily wage of government employees in Ho Chi Minh City. VNPT’s failure to turn monopoly rents into learning rents so as to acquire industrial upgrading can be explained by the fact that VNPT had little political and institutional pressure 16 from the government to industrialize. In addition, VNPT, as a state-owned monopolist, obviously benefited from monopolistic profit. Therefore, the market exerted no pressure or incentive for VNPT to upgrade its networks and services. Consequently, there was no value-enhancing rent management mechanism at the political, institutional, or industrial levels to pressure capabilitybuilding for the industry as a whole. Indeed, technical upgrading did not take place until 1995, when the government broke VNPT’s monopoly by giving business licenses to S-Fone and Viettel. It was this same year when VNPT signed its first contract with Comvick, which created the first mobile phone service network in Vietnam. Table 3 summarizes the monopoly period using the DRMA framework. Table 3: DRMA Summary of the Monopoly Period Player Type of rents VNPT - Monopoly rent based on the industry’s historical context - Government subsidized lossmaking period (until 1995) Incentives created - Unproductive capture of monopoly rents - Limited incentives to improve infrastructure and capability Factors affecting the rent management mechanism Rent outcomes - Political protection of the monopoly - No clear institutional mechanism to monitor VNPT’s progress - No competition in the market - High cost and slow speed service - Slow infrastructure and technology upgrading From a rent management perspective, the ending of VNPT’s monopoly was an important hallmark for the development of the telecom sector because it opened up competition and pressure for capability-building in the industry. Several factors occurred during the post- 17 monopoly period. First, developmental rent management mechanisms first derived from the political will that introduced market competition among state-owned enterprises. Second, Viettel and its managing ministry, the Ministry of Defense (MoD), played an important role in keeping VNPT in check. In using the MoD’s political and military power to lobby against VNPT’s anticompetitive behaviors, Viettel successfully forced VNPT to play fair, allowing Viettel and other newcomers a chance to compete in the newly opened market. Third, from an institutional perspective, there were important policy instruments, such as Decree 109, Decision 217, Ordinance 20, and Decree 160, all of which set out the legal framework that bound telecom operators to cooperate and compete fairly. Finally, at the industry level, high profit margins and intense market competition among the operators forced significant effort in learning and upgrading. 5. Informal Learning Rents: The Case of Viettel The forerunner of Viettel was Sigelco, a state-owned enterprise, which was established in 1989 as an electronics information and equipment company under the MoD. Sigelco provided services to the military via the military’s own telecommunication network. In 1993, Sigelco became Military Electronics Telecommunications Corporation under the trademark Viettel. When the government ended VNPT’s monopoly status and called for more operators in the telecommunication sector in 1995, Viettel applied for a license with the promise that it will not depend on the government’s finances to develop its new commercial telecom company. In that same year, Viettel was granted a license to provide local and long distance landline service, as 18